Monday, April 15, 2013

In its original three-judge panel opinion last year, the Ninth Circuit held in no uncertain terms that under Concepcion, "the FAA preempts the Broughton-Cruz rule." Kilgore v. KeyBank, N.A., 673 F.3d 947, 951 (9th Cir. 2012) (hyperlinks added).

We hold that the Broughton-Cruz rule does not survive Concepcion because the rule "prohibits outright the arbitration of a particular type of claim"—claims for broad public injunctive relief. Concepcion, 131 S.Ct. at 1747. Therefore, our statement in Davis—that Broughton and Cruz prohibit the arbitration of public injunctive relief claims in California—is no longer good law. See 485 F.3d at 1082.

The Broughton plaintiffs “were covered by Medi-Cal, which had negotiated a contract with Cigna ... for health care coverage.” Id. at 71. They sued Cigna under California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750–85, seeking damages for medical malpractice and injunctive relief against Cigna’s allegedly deceptive advertising. Broughton, 988 P.2d at 71. The California Supreme Court held the damages claim subject to the arbitration clause in the Cigna policy because “[s]uch an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important public interests.” Id. at 79. But the Court also found that because the plaintiffs were “functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public,” id. at 76, their injunction claims were not arbitrable, id. at 75–78.

The California Supreme Court expanded upon Broughton in Cruz v. PacifiCare Health Systems, Inc., 66 P.3d 1157 (Cal. 2003). .... Extending the reasoning of Broughton to claims brought under the UCL and Business and Professions Code, the Cruz court found “the request for injunctive relief is clearly for the benefit of health care consumers and the general public” and therefore not subject to arbitration. Id. at 1164.

We applied the Broughton-Cruz framework in Davis, 485 F.3d at 1081-84. ....

Defendants argue that Davis was vitiated by Concepcion, and the Broughton-Cruz rule no longer exempts a public injunction claim from arbitration. We need not reach that broad argument. Even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview.

Public injunctive relief “is for the benefit of the general public rather than the party bringing the action.” Broughton, 988 P.2d at 78. A claim for public injunctive relief therefore does not seek “to resolve a private dispute but to remedy a public wrong.” Id. at 76. Whatever the subjective motivation behind a party’s purported public injunction suit, the Broughton rule applies only when “the benefits of granting injunctive relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered.” Id.

The claim for injunctive relief here does not fall within the “narrow exception to the rule that the FAA requires state courts to honor arbitration agreements.” Cruz, 66 P.3d at 1162.

Slip op. at 14-17 (footnote omitted).

The opinion concludes, as did the original opinion, that the arbitration clause was not unconscionable under Armendariz. Id. at 10-14.

Judge Pregerson dissented. His opinion provides some additional factual context and includes the plaintiffs' fine-print contracts (for tuition loans for an education they never received) as an appendix. Slip op. at 18-26 & Appx. A.

The new opinion is not the legal watershed as it could have been. The California Supreme Court has denied review in two cases holding that the Broughton/Cruz rule remains good law. The dissent is worth reading.

In article on the opinion Friday, the San Francisco Chronicle reported that "[s]tudents at an Oakland helicopter pilot school that folded in 2008 can't
sue a bank for relief from unpaid loans and must take their cases to
arbitration, a federal appeals court ruled Thursday. .... In an indignant dissent, Judge Harry Pregerson said the [arbitration] fee, a
confidentiality requirement and other arbitration provisions were
one-sided and unfair. KeyBank 'participated in the fraud that Silver
State [Helicopters] perpetrated on unwitting students' and should be held accountable
in court, Pregerson said."